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Live USB/CD

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That's the short answer. The longer answer is that it's possible, but it's a violation of the Windows EULA so it's illegal, it's extremely difficult to do even for people who know what they're doing, which you don't or you wouldn't even need to ask, and the end result is really not very useful. So you have one legal, and two serious technical issues to contend with. Which is why I will now refer you back to the short answer.

I was planning on doing it legally. When I buy it from the Microsoft Store and install it on a flash drive. Will it be allowed to boot off of the USB like a Live USB or just install it from the USB to my hard drive?

0. Have administrator rights - assume that is your PC and not for a example a corporate one with limited user rights.

1. Have the original Win7 DVD or the converted .iso file from the DVD. In the latter case mount it with a program like Virtual CloneDrive. Take a note of the Drive letter - assume D: from now on.

2. Connect the usb stick and take note of the letter - assume U: from now on. The stick should be at least 4GB. Backup any data prior to this. Format it with NTFS file system (from the file explorer, right click on the usb drive, select format).

3. Goto to Command Prompt shortcut, right click on it, and select Run As Administrator.

4. Type DISKPART <enter>. The prompt changes to "DISKPART>".

5. Type LIST DISK <enter>. You should see a list of your drives including the USB stick. Take a note of the drive number on the left. You should be able to distinguish it by size. An example:DISKPART> LIST DISK